Fintech boosts trade in migrant worker remittances

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Long forced to send money home through an inefficient and costly gray market system, migrant workers in Taiwan now have access to a growing number of convenient and secure mobile app-based remittance services made possible by recent regulatory changes.

For many years, Taiwan’s financial sector paid little attention to the more than 700,000 migrant workers from Indonesia, Vietnam, the Philippines and Thailand who currently live and work on the island. Each of these workers typically sends around US$500 a month to relatives back home, representing a huge annual overseas remittance flow of over US$4 billion.

Without the means to transfer funds through local banks, these migrant workers have long had to resort to less secure measures to send money home. Many take their hard-earned money to places like Indonesian-run grocery stores and Filipino karaoke bars, where brokerage firms then bundle hundreds of funds and send them to banks in the migrant workers’ countries of origin. Agencies typically charge high fees for this service, and transactions can take days or even weeks.

The situation appears to be improving, however, as Taiwan’s nimble fintech sector has recognized potential business opportunities and Taiwan authorities fear the flow of remittances abroad has become too large to be left in the zone forever. gray legal.

In 2019, Taiwan launched a regulatory sandbox for new fintech applications. This led to the amendment in 2021 of the law governing electronic payment institutions and the promulgation of the regulation governing small amount transfer services for foreign workers. Migrant workers can now send money from Taiwan using electronic payments through specially designed mobile apps.

In addition, the Financial Supervisory Commission (FSC) last October expanded its definition of financial services companies to include foreign worker remittance businesses, a change that allows migrant workers to seek assistance from a mediator under the law on the protection of financial consumers in the event of a dispute.

“It was often not easy for migrant workers in Taiwan to access formal banking services due to the high costs of banks’ currency transfer services and limited opening hours, as well as travel barriers, work habits and language,” a spokesperson said. for the FSC explains. “The new measures should allow small-value remittance services to be operated through legitimate, secure and transparent channels while incentivizing migrant workers to send money through these channels, which may prevent them from to scam or to provoke conflicts”,

Service Pioneers

As of mid-June, only two companies – Welldone Company and Eastern Union Interactive Corp. (EUI) – have obtained the new permit from the FSC. Welldone, which got its start as a contract manufacturer of batteries for Toshiba, launched its remittance business in October last year, followed by EUI in May. Welldone’s online micropayment platform, Quickpay, generates a barcode that can be scanned at any of Taiwan’s major convenience store chains, after which the funds to be remitted are collected by the clerk. The recipient in the migrant worker’s home country collects the payment from a local bank or, in remote areas, from a cash machine using another barcode on the same app.

EUI, a local fintech company, has developed several apps marketed to migrant workers from major labor-exporting countries to Taiwan, including Vietnam (VietMoney), the Philippines (PhilMoney), and Indonesia (IndoMoney). Their apps work the same way as Welldone’s Quickpay.

“Compared to traditional banks and grocery stores, where people have to come in person during business hours to initiate transactions, and where the need for instant transfer of small amounts cannot be met, foreign workers can now their money abroad instantly using the apps and complete the transaction at convenience stores or ATMs,” says lawyer Jaclyn Tsai, president of the Taiwan FinTech Association and former minister without portfolio. having to overcome the language barrier to communicate with someone in person and has the added benefit of allowing foreign workers to send money 24/7.”

Local fintech company EUI has developed several apps for migrant workers from major labor-exporting countries to Taiwan.

Nevertheless, Tsai notes that statistics published by the Taiwanese magazine Business Today show that remittances sent via Welldone and EUI currently represent only about 20% of the money sent by foreign workers from Taiwan to their home country. . “Because the laws and the license are relatively new, there is still a lot to be done to increase foreign workers’ awareness and confidence in these new tools,” she says.

More than 10 companies have since inquired with the FSC about the new permits. Among these is Taipei-based FastPay, a spinoff of a migrant worker brokerage firm that currently only serves the Filipino community. FastPay, which currently holds a Labor Agency License and a Mobile Application Security License, offers an application similar to those developed by Welldone and EUI.

In addition to remittances, FastPay’s app also allows migrant workers to contribute to the Philippine pension fund, make church donations, maintain an e-wallet, and pay utility bills for loved ones. . “The latter feature is becoming increasingly popular, as many migrant workers fear that their relatives back home will spend the money in a way that has not been agreed upon,” says Kate Valencia, FastPay’s operations manager. “The pandemic has served as an underlying stimulus to our services, as places where foreign workers congregate have been closed and many employers have not allowed their foreign employees to leave.

FastPay charges between NT$99 and NT$149 per transaction, compared to the typical Taiwanese bank range of NT$350-500. Nationally, he promotes his service by sponsoring cultural events, such as the Fun Run 2022 held at New Taipei Metropolitan Park on Philippine Independence Day in June. The company is also preparing to enter the foreign worker remittance markets in the United States, Canada, New Zealand and Japan.

Joseph Tseng, corporate lawyer in the Taipei office of K&L Gates, confirms that the Taiwanese legal framework for the remittance business is at this stage solid, as service providers are required to carry out KYC (know your client) – for example, by requiring clients to present their ID, work permit and passport in order to complete a transaction. This, he says, greatly reduces the risk of money laundering and fraud compared to the conventional way of sending money via grocery stores and karaoke bars.

Lawyer Jaclyn Tsai said that although apps for international money transfer are more convenient than traditional methods, usage has been slow to grow.

In addition, funds received by foreign worker transfer companies are secure, as they are either given to a fiduciary or backed by a guarantee from a financial institution. It is prohibited to mix these funds with the assets of the money transfer company. The FSC is also authorized, at any time, to require companies to submit financial and asset reports and audits or to retain the services of an auditor to carry out an inspection of the company’s financial operations and reports. The commission demands that overseas money transfer services be limited to foreign workers only.

“The main concern of the Central Bank of Taiwan is not primarily the fight against money laundering, but the fact that the exchange rate could be affected by a disorderly outflow of capital,” Tseng said. “Therefore, foreign worker remittance companies must still conduct cross-border remittance transfers through banks.”

Tseng predicts that the current limits for each foreign worker of NT$30,000 per transaction, NT$50,000 per month and NT$400,000 per year will prove to be too low, and will therefore need to be raised in the medium term.

Macroeconomically, Taiwan relies heavily on foreign workers to meet growing global demand for consumer electronics, as well as for healthcare, agriculture, support for the island’s fishing fleet and construction. The countries of origin of the workers, for their part, depend heavily on their remittances, with the Philippines, for example, earning 9.6% of its GDP from these transactions in 2020, according to the World Bank.

Nick Marro, head of global trade at the Economist Intelligence Unit, notes that until the advent of COVID-19 in 2019, the number of foreign workers in Taiwan steadily increased each year. He predicts this trend will reappear as Taiwan gradually eases its border restrictions on inbound travellers. “The relatively stable economic outlook for the next five years suggests a decent amount of employment and income opportunities, especially for foreign workers from developing Southeast Asia, given that wages in Taiwan can be higher than they could get at home,” Marro said. “As a result, we can probably expect the number of remittance transactions to grow in parallel, creating opportunities for fintech companies that want to engage in this space, including facilitating those transfers.”

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